Pew: ‘Gotcha’ rules still needed at banks

But finds practices have improved

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The nation’s biggest banks are doing a better job of clearly disclosing key terms and fees on checking accounts, but more rules are needed to protect consumers from "gotcha" overdraft fees and from signing away rights for settling disputes, found a just-released study by The Pew Charitable Trusts.

Pew said many banks had improved practices since its previous analysis one year ago. “Yet we still find the need for action from the Consumer Financial Protection Bureau to ensure banks offer the highest level of consumer protection.”

The review ranked 44 of the 50 largest banks in three areas: account disclosures, overdraft policies and dispute resolution policies. Ally Bank, which operates primarily as an online bank, was the only institution to receive a perfect score.

The report covered five banks with retail branches in the Pittsburgh region. Among those, PNC, Citizens and First Niagara landed in the middle of the pack, while Fifth Third ranked near the top and Huntington fell toward the bottom.

“The good news is: We’ve seen some improvements, but we have also seen some worsening of practices,” she told reporters in a conference call Wednesday.

PG graphic: Bank scorecard(Click image for larger version)

On the negative side, more banks have been adding class action and jury trial waivers along with mandatory binding arbitration clauses to their account agreements, all of which limit a consumer’s options during a dispute, the report said.

Among the five Pittsburgh-area banks, Fifth Third was the only one that did not include mandatory arbitration clauses or prohibit consumers from joining a class-action lawsuit to pursue a dispute, the report showed.

Among the other four banks, PNC, Citizens and First Niagara received some credit for allowing customers to opt out of arbitration if they followed the bank’s required procedure, which usually involves submitting a letter via mail.

All five local banks got points for not including an account provision that requires consumers to pay the bank’s costs should they pursue a dispute, no matter the outcome of the case. Overall, 10 of the 44 banks reviewed had such a provision.

Pew called on the financial protection bureau to prohibit mandatory binding arbitration clauses, which block customers from using the courts and “potentially allow harmful practices to spread unchallenged by legal or public scrutiny.”

As for overdraft policies, the report showed that more banks were charging customers a so-called extended overdraft fee, which is an extra charge that kicks in when an account remains in the red for a certain number of days. The fee comes on top of the typical per-item overdraft fee of $35.

Among the local banks, only Fifth Third did not impose an extended overdraft fee. Overall, 19 banks received points for not charging the fee.

Pew also gave best-practice points to banks that did not engage in re-sequencing customers’ debit card transactions, checks or other withdrawals from high dollar amount to low, and instead processed them in the actual order they came in. Reordering from high-to-low tends to drain an account more quickly and trigger the most overdraft fees.

The study found roughly half the banks never reordered transactions from high-to-low.

Among the local group, Huntington was the only one cited for not engaging in the practice, while Fifth Third, PNC, Citizens and First Niagara were listed as using it on a “limited” basis.

“These banks reorder only some withdrawals from high to low, often checks written against the funds in the account,” Pew said.

PNC said as a rule it processes all transactions in the order they come in. “Only if no date and time are available and no sequence number is available … will items be processed from largest-to-smallest dollar amount,” a spokeswoman said in an email Wednesday.

Pew said on the plus side, more big banks were providing customers with short, simplified disclosure boxes summarizing key terms and fees "so that consumers understand the intricacies of their checking accounts."

Overall, 19 of the 44 banks studied, including all of the local banks except for Huntington, adopted a disclosure box that met Pew’s criteria. Another nine institutions got credit for providing a disclosure box that didn't fully meet Pew’s standards.

Nine in 10 Americans have checking accounts, the Pew study stated.

“Because checking accounts are an essential and widely used product, they need to be safe, fair and transparent.”

For the full report,“Checks and Balances,” including how all 44 banks performed, visit www.pewstates.org.

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